It is costly to hold money because
A) deﬂation may reduce its purchasing power.
B) in doing so, one sacriﬁces interest income.
C) bond prices are highly variable.
D) the rate at which money is spent may decline.

Question

Quizplus · Accepted Answer

When money is held, it is not invested and therefore does not earn interest income. This represents a cost of holding money, as the individual is foregoing potential earnings. Options A, C, and D do not fully capture the cost of holding money.

It Is Costly to Hold Money Because